Examination of Witnesses (Questions 240
TUESDAY 23 APRIL 2002
240. So you are saying you do not anticipate
that this particular tax change will affect the status of the
City of London as a major centre for international financial transactions?
(Mr Gibbs) That is right, we certainly do not anticipate
241. But that is not based on any consultation
and that is not based on any feedback from the banks themselves
because you say so far you have not had it?
(Mr Gibbs) We have not had it yet but it is based
on consultation with a number of other countries.
242. With a number of other countries but not
with the banks themselves.
(Mr Gibbs) The international tax regime that appliesWhen
tax is in the arena of international tax treaties the OECD leads
consultation processes and there is a public consultation process
at the OECD which the international banks are well aware of.
243. What percentage of the total additional
tax take in the Budget falls on the business sector, including
of course the changes in NICs?
(Mr Gibbs) I think the best way to look at it is to
look at Table A.1, Pages 154-155. The first item is, of course,
is the one you mentioned which is the NICs increase which accounts
for £4.1 billion in 2004-05. Moving beyond that, there is
a series of anti-avoidance measures which essentially fall on
the non-tax compliant sector. They are identified mainly on the
second of those pages as VAT anti-avoidance, where we are closing
down three schemes and we are tackling stamp duty avoidance. Those,
from recollection, amount to some £1.1 billion of anti-avoidance
measures and then the balance of the measures between what are
discretionary tax increases on the North Sea, on foreign branches
and on the foreign exchange reform that I mentioned earlier, come
to some £1.6 billion, which is roughly offset by the £1.6
billion tax reductions for a range of things, in particular, the
capital gains reform and the R&D tax credit.
Mr Cousins: I am trying to get a total,
I am trying to get the net effect on the business sector. Would
it be right to say that the total increase in tax take is over
£4 billion by 2004-05?
244. £5.2 billion.
(Mr O'Donnell) Could I add
245. I am sorry, I am asking Mr Gibbs this question.
Mr Gibbs has referred me to the table, I am looking at the table
and I am asking Mr Gibbs to give me a figure.
(Mr Gibbs) Well, the NICs measure amounts to just
over £4 billion, there is £1 billion of anti-avoidance,
and the rest net out.
246. It is £5.2 billion.
(Mr Gibbs) I would not put it at that because the
anti-avoidance measures are essentially taxes being paid by quite
clearly non-compliant taxpayers. They are essentially restoring
the revenues to where they should have been had the avoidance
not taken place.
(Mr O'Donnell) Also, I have to say, it depends on
the incidence. If you look at the NICs issue, who pays that? It
might be paid by a corporate to start with but the ultimate incidence
as to who bears it is an interesting question.
247. Accurate, but I am not sure from your point
of view entirely helpful. Just sticking to the business sector,
we have got it then that the figure is over £5 billion by
(Mr Gibbs) Only if you are prepared to count a raft
of anti-avoidance measures which are simply restoring the tax
take to where it should have been had some quite creative tax
avoidance activity not taken place.
Mr Cousins: Thank you.
248. Talking about creative tax avoidance, can
I bring you on to tax relief for British films. Whose area is
(Mr Gibbs) Mine again.
249. Welcome back. This has been a bit of a
shambles, has it not? This measure was bought in 1997 and was
going to cost £15 million. Can you tell us how much without
the anti-avoidance measures you are now planning the tax relief
would cost in 2003-04 and 2004-05?
(Mr Gibbs) No, I cannot because I do not have those
numbers. I can tell you that the cost of relief is thought to
have doubled between 2000 and 2001.
250. I am sorry, you must know how much relief
would have cost in the absence of anti-avoidance measures in 2003-04
and 2004-05. You have projected how much you are going to save
by the restrictions you have put in place so you must have known
what the underlying amount was.
(Mr Gibbs) I am not pretending that we do not know
that in a corporate Inland Revenue Treasury sense. I just do not
have those figures in front of me, I have round figures for the
cost of the relief.
251. Mr Troup of Simmons & Simmons has suggested
that it is of the order of £360 million now per year. Does
that sound about right?
(Mr Gibbs) In which year?
(Mr Gibbs) I think it is likely to be rather more
253. More than that?
(Mr Gibbs) £310 million is the Inland Revenue's
current estimate of the cost of the relief in 2001 which is up
on £140 million in the year 2000. That is a rapid rate of
increase so I think if that rate of increase were to go on unchecked,
without the changes we are proposing, we would expect the figure
to be higher further out, but I do not have those figures, I am
254. What has happened here? This has grown
out of control and you have not regulated it in a proper way;
is that right?
(Mr Gibbs) What has happened here is that the relief
has been based for simplicity to avoid complicating the tax law
further, on the definition of a film which exists elsewhere in
the law but which turns out to have loopholes in it which do not
allow it to match up to what the intention of the relief was in
the first place. In other words, television programmes can claim
Mr Laws: I have with me an article which
you have probably read in the FT this morning that says
that relief has been used for programmesand I have not
seen any of these myselfsuch as Teachers, Shackleton,
Bad Girls and you are concerned that it may have been used
for Coronation Street
255. Somebody draw a halt, this is a family
(Mr Gibbs) We have seen some reports as well and some
other very good television programmes apparently have claimed
the relief, but it was never the purpose of the relief to fund
television, good, bad or otherwise.
256. Do you think Coronation Street has
been able to claim it?
(Mr Gibbs) I have read press reports that they have
but I think that is probably taxpayer confidential.
257. Is it conceiveable under the rules that
(Mr Gibbs) It is conceivable that a television programme
could claim it. That is why we are tightening down on the relief.
258. Why was this error made? Why was it structured
in a way that allowed in a relatively easy way television companies
to abuse it?
(Mr Gibbs) It may not have been that easy because
it has taken several years for it to happen to any significant
degree. I cannot comment on precisely why it developed in that
way in the first place other than there was a wish not to try
and write into the tax law a separate definition of film when
one already exists, but as the one which already exists does not
work we are having to review it. This is an illustration of why
it is not just an empty platitude to say we keep taxes under review.
We do keep taxes under review, and this is the sort of thing that
259. You are closing your own loopholes basically.
Can you tell us whether you have carried out a review of the economic
value of this relief?
(Mr Gibbs) I believe we have, yes, and I believe that
was reflected in the decision to extend the relief a year ago.